“Where a calculator like ENIAC today is equipped with 18,000 vacuum tubes and weighs 30 tons, computers in the future may have only 1,000 vacuum tubes and perhaps weigh only 1.5 tons.” – Popular Mechanics, March 1949
The digital revolution began in the late 1940s when existing analog technology was converted into a new digital format. This eventually made it possible to make identical copies of things such as recorded music on CDs and scan and save documents on a computer’s hard drive.
Digitizing information also makes it possible to move items between different media and to access or distribute it remotely. Streaming services such as Netflix or Spotify and sending and receiving faxes or emails are just a few examples.
Digital is a general purpose technology
In “The Long and Short of The Digital Revolution”, the International Monetary Fund describes the digital revolution as a “general-purpose technology”.
A general purpose technology is one that can be continually transformed and used to boost productivity across all business sectors. Mankind has seen only three similar prior transformations: the steam engine, the electricity generator, and the printing press.
While the digital revolution represents the fourth general transformational change, there are also four waves within the digital revolution itself:
- Wave #1: 1960s when large corporations devoted entire floors to computer and data processing systems such as those mentioned by Popular Mechanics
- Wave #2: 1980s when the desktop and personal computers with lower costs and faster processing speeds gained widespread acceptance in both the business and general consumer markets, triggering a surge in at-work and at-home productivity
- Wave #3: 1990s with the internet allowing people to communicate, consume, and share information from any place at any time
- Wave #4: Today with digitalization used to create digital assets and tokens, increased digital usage, and a digitally-enable global workforce
General-purpose technologies are disruptive by nature
“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” – Buckminster Fuller
Major technological disruption is occurring because digitalization is both flexible and pervasive. Benefits come from both adopting the technology and adapting to the technology. We’ve written previously about how Uber, Airbnb, and blockchain in real estate are creating brand new business models, delivering better service, vastly improving efficiency, and opening new opportunities for fractional investment.
In less than a generation there have been an almost countless number of old technologies that have been converted, disrupted, and even disappeared like the dinosaur:
- Photographic film to digital photography
- Offset printing to digital printing on demand
- 2G to 3G to 4G to 5G mobile phone service
- Telegram, typewriter, and fax machine
- Landline and pay phones
- S. 1st class mail service
- CRT, plasma display, backlit LCDs
How technology is affecting jobs and work
It’s clear from the very short list above that automation, digital platforms, and innovation are changing the nature of both business and the people that work in them.
In January of 2013, McKinsey & Company published a report entitled “Education to employment: Designing a system that works”. McKinsey noted that in all parts of the world, in both developed and emerging markets, there are high levels of unemployment among young people while job seekers lack the critical skills that businesses need.
In part due to the digital revolution, over the past six years this problem has only become worse. While it’s true that today’s digital technologies are turning upside down the way that people work, automation and technology are also creating new opportunities.
“What turns me on about the digital age, what excites me personally, is that you have closed the gap between dreaming and doing.” – Bono, lead vocalist of rock band U2
Eliminating the need to live where you work
Prior to the digital revolution, income-earning opportunities were limited to being in the right geographic place at the right time with the right skill set.
Where there is a demand for work in a specific geographic location there may not be available and qualified talent, and vice versa. This mismatch is seen across regions within countries and between countries themselves.
Today, digital online talent platforms create transparency and efficiency in labor markets around the world by improving the match between skilled workers and jobs, boosting incomes and GDP in the process.
In addition to eliminating the need to live where one works, the digital transformation is also creating opportunity for new entrepreneurial activity. Knowledge-enabled jobs allow people in self-employed occupations – as well as small and large businesses – to benefit from higher income earning opportunities leveraged with the low cost of living or operating in another location.
Enabling the independent digital worker
The digital revolution is responsible for the new “on-demand” economy, creating digital platforms that provide scale, efficiency, and ease of use for both workers and customers.
In its 5th Annual Freelancing in America study, the global freelancing platform Upwork found that 56.7 million people in the U.S. work as independent freelancers. Technology is making it easier for freelancers to find work online, with over one-half of the freelancers surveyed saying “no amount of money” would get them to take a traditional job again.
The digital revolution and the growth of the independent workforce is also a main reason that real estate is increasingly being viewed as a service rather than a fixed asset. The transformation of traditional office space with long-term leases into flexible turnkey coworking space, and mixed-use co-working/co-living spaces are just two examples of the changing real estate marketplace.
Creating new jobs, incomes, and investment opportunities
According to McKinsey & Company, more than one-third of the new jobs created over the past 25 years in the U.S. were types that didn’t exist or barely existed before. IT development and systems management, hardware manufacturing, and app creation are three examples.
It doesn’t appear that this new job growth will stop soon. Due to the growing role that big data plays in the economy and business, the firm estimates there will be a shortfall of 250,000 data scientists in the U.S. alone over the next 10 years.
The digital revolution is also creating a capital investment boom across all industry sectors. For example, a recent article in the Wall Street Journal notes that big banks and venture capital firms have invested $12.9 billion real estate proptech in just the first six months of this year. That’s an increase of 2,600% compared to a total investment of $491 million in 2013.
How the digital wave differs from previous transformations
“The digital revolution has also meant a revolution in access to information. This puts more power and knowledge into the hands of nonexperts.” – Naveen Jain, founder of Intelius and TalentWise
The biggest difference between the previous three transformational waves of steam, electricity, and printing is the speed that digital technology is being spread throughout the world. For example, during the electricity revolution of the early 1900s the U.S., Germany, and the UK quickly adapted to electric power while the rest of the world lingered.
In today’s digital revolution, computers, the internet, and artificial intelligence backed by big data and reliable electric power are widely available around the globe.
Less developed countries are often early adapters of cutting edge technologies because they are unhindered by existing outmoded infrastructure. Three examples are mobile payment systems in Kenya, digital land registration in India, and e-commerce in China. While Amazon is best known in the U.S., Chinese e-commerce giant Alibaba has twice as many active users and generates about 30% more net income than Amazon does.
Making the most of the digital revolution
The digital revolution is creating major new opportunities for workers, businesses, and capital investment.
Currently the most digitized business sectors are financial services, media, and technology. These are also the sectors with the highest productivity and wage growth. Some of the least digitized business sectors include healthcare, education, and – Amazon and Alibaba aside – the retail sector.
Regardless of company size or sector, businesses of all shapes and sizes can benefit from digitization in three main ways:
- Digitization of assets such as using infrastructure to connect with big data platforms and using blockchain to create digital tokens for fractional asset ownership
- Digitization of operations including processes, payments, and business models that didn’t exist just a few year ago
- Digitization of workforce with digitally skilled workers, new jobs and roles, and digital tools
We’ll end this quarter’s newsletter with a quote from Steve Wozniak.
Only Mr. Wozniak knows if he was commenting on how quickly computers were becoming smaller and handheld. Or, perhaps he was opining on the cloud-based digital revolution taking place today:
“Never trust a computer you can’t throw out a window.” – Steve Wozniak, co-founder of Apple
We look forward to sharing our thoughts again in our next quarterly report. In the meantime, should you have any questions, we look forward to hearing from you.
Very truly yours,
Chief Executive and Investment Officer